Why does accounting matter?
Try and imagine your local grocery store sans an accounting department. At first glance, you may be thinking that they could get by because all the transactions are recorded in the registers and through other electronic means. Right, but wrong. What about all the inventory? What about the employees pay checks? What about federal, state and city taxes? What about cash flow patterns? The accounting department exists to ensure that a business isn’t losing unnecessary money, employees are being paid, obligations like taxes are correctly fulfilled, trends and patterns that effect the businesses profits and losses are being analyzed and inventory is being paid for.
Tracking business performance
Every bit of money that comes and goes from a business needs to be tracked and accounted for. By adequately recording this information and then studying it, accountants can determine the longevity of a business, financial forecasts and the overall business performance. Are you paying your clients on time? Could you find better deals on some of your products? Is there money being wasted on a third party when the tasks could be done in house for cheaper? It’s not enough to just run a business and “hope” that it’s successful. It takes a lot of time and effort understand the basic cash flow and how to improve functionality and efficiency.
So we know that tracking business performance is crucial to the health of your business, but how do we do it? Reports, reports, reports. Management accounting includes putting together cash flow statements, accounts payable, accounts received, budgets and expense reports. There is no real rule as to what reports you need to create or use to manage your business. It’s all up to you and determined by you, and your business needs.
If you have a considerable amount of customers who owe you money (like a payday loan business) you are obviously going to want to have very well-designed account received reports. Accounts received reports show you who has paid, when they paid, how much more they owe in addition to who hasn’t paid, who’s overdue and what the total amount you are owed is. Knowing this information can help you tremendously as you move forward with business decisions.